| September 30, 2002 (unaudited) | | December 31, 2001 (audited) |
CURRENT LIABILITIES | | | |
Disbursements in excess of cash balances | $0 | | $15,539 |
Accounts payable | 1,042,132 | | 1,034,619 |
Accrued payroll | 169,989 | | 265,978 |
Other current liabilities | 161,396 | | 54,996 |
Notes payable to stockholder | 0 | | 18,521 |
| 1,373,517 | | 1,389,653 |
LONG-TERM LIABILITIES | 0 | | 0 |
TOTAL LIABILITIES | 1,373,517 | | 1,389,653 |
| | | |
REDEEMABLE COMMON STOCK | | | |
Common stock subject to rescission: no shares outstanding at September 30, 2002, $.0001 par value per share, and 2,138,726 shares outstanding at December 31, 2001 | 0 | | 1,192,700 |
| 0 | | 1,192,700 |
| | | |
STOCKHOLDERS’ DEFICIT | | | |
Common stock, $.0001 par value; Authorized: 100,000,000 shares; Issued and outstanding: 50,766,338 shares at September 30, 2002, and 23,848,108 at December 31, 2001 | 5,077 | | 2,385 |
Additional paid-in capital | 38,945,575 | | 35,642,817 |
Accumulated deficit | (39,375,003) | | (37,000,628) |
Subscriptions receivable | 153,500 | | 165,750 |
Deferred consulting | (836,151) | | (1,163,149) |
| (1,107,002) | | (2,352,825) |
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $266,515 | | $229,528 |
The accompanying notes are an integral part of these statements.
The accompanying notes are an integral part of these statements.
CASH FLOWS FROM OPERATING ACTIVITIES | | | |
Net loss | $(2,374,375) | | $(2,162,374) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 22,917 | | 27,231 |
Consulting fees paid with stock | 812,824 | | 1,321,843 |
Legal fees paid with stock | 101,000 | | 0 |
Compensation expense paid with stock | 900,880 | | 47,947 |
Advertising expense paid with stock | 62,000 | | 0 |
Changes in operating assets and liabilities: | | | |
Inventory | (4,100) | | 1,398 |
Other current liabilities | 102,000 | | 19,775 |
Other assets and liabilities | 0 | | 7,400 |
Accounts payable | 44,941 | | 22,786 |
Accrued payroll | (86,038) | | 129,422 |
Net cash used in operating activities | (417,951) | | (584,572) |
| | | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | |
Capital expenditures | (28,567) | | (4,160) |
Net cash used in investing activities | (28,567) | | (4,160) |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from subscriptions receivable | 305,000 | | 302,000 |
Proceeds from notes payable to stockholder | 0 | | 48,290 |
Issuance of common stock for cash | 212,000 | | 250,000 |
Payment on note payable to stockholder | (18,521) | | 0 |
Warrants exercised | 13,000 | | 0 |
Fee for stock issuances | (4,900) | | (8,000) |
Net cash provided by financing activities | 506,579 | | 592,290 |
Net increase (decrease) in cash and cash equivalents | 60,061 | | 3,558 |
Cash and cash equivalents, beginning of period | 10 | | 1,088 |
Cash and cash equivalents, end of period | $60,071 | | $4,646 |
- | In January 2002, the Company entered into a one-year consulting agreement, by issuing 120,000 shares of stock valued at $10,800. |
- | In February 2002, the Company entered into a four-month consulting agreement, by issuing 300,000 shares of stock valued at $30,000. |
- | In March 2002, the Company entered into a one-month consulting agreement, by issuing 75,000 shares of stock valued at $7,500. |
- | In March 2002, the Company issued 75,000 shares in payment of legal services, which shares of stock were valued at $6,000. |
- | In April 2002, the Company entered into a one-month consulting agreement, by issuing 75,000 shares of stock valued at $6,000. |
- | In April 2002, the Company issued 500,000 shares in payment of legal services, which shares of stock were valued at $35,000. |
- | In April 2002, the Company issued 500,000 shares of stock to a consultant valued at $35,000. |
- | In April 2002, the Company issued a total of 9,000,000 shares to certain officers, in connection with their respective employment agreements, which shares were valued at $960,000. |
- | In April 2002, the Company issued 200,000 in payment of a $20,000 account payable. |
- | In April 2002, the Company entered into a six-month consulting agreement, by issuing 900,000 shares of stock valued at $99,000. |
- | In April 2002, the Company entered into a six-month consulting agreement, by issuing 250,000 shares of stock valued at $27,500. |
- | In April 2002, the Company entered into a six-month consulting agreement, by issuing 250,000 shares of stock valued at $27,500. |
- | In April 2002, the Company entered into a six-month consulting agreement, by issuing 150,000 shares of stock valued at $15,000. |
- | In May 2002, the Company issued 900,000 shares in payment of legal services, which shares of stock were valued at $60,000. |
- | In May 2002, the Company entered into a one-month consulting agreement, by issuing 75,000 shares of stock valued at $4,500. |
- | In July 2002, the Company entered into a four-month consulting agreement, by issuing 300,000 shares of stock valued at $15,000. |
- | In July 2002, the Company entered into a three-month consulting agreement, by issuing 300,000 shares of stock valued at $15,000. |
- | In July 2002, the Company entered into a six-month consulting agreement, by issuing 300,000 shares of stock valued at $18,000. |
- | In July 2002, the Company issued 600,000 shares of stock, valued at $36,000, as an employment bonus. |
- | In August 2002, the Company issued 75,000 shares of stock to a consultant valued at $4,500. |
- | In August 2002, the Company entered into a three-month consulting agreement, by issuing 375,000 shares of stock valued at $18,750. |
- | In September 2002, the Company entered into a six-month consulting agreement, by issuing 1,000,000 shares of stock valued at $60,000. |
- | In September 2002, the Company issued 1,000,000 shares in payment of legal services, which shares of stock were valued at $80,000. |
- | In September 2002, the Company entered into a three-month consulting agreement, by issuing 300,000 shares of stock valued at $18,000. |
- | In January 2001, the Company entered into a one-year consulting agreement, by issuing 200,000 shares of stock valued at $62,000. |
- | In January 2001, the Company issued 800,000 shares of stock valued at $248,000, in payment of a commitment fee under a common stock purchase agreement. |
- | In January 2001, 774,162 shares were issued to the Company's president, pursuant to a debt conversion agreement, which shares were not issued in 2000, due to an administrative error. |
- | In April 2001, the Company issued 300,000 shares of stock valued at $183,000, under a consulting agreement. |
- | In May 2001, the Company issued 200,000 shares of stock valued at $62,000, in payment of a finder’s fee arising out of a common stock purchase agreement. |
- | In May 2001, the Company issued 60,000 shares of stock valued at $24,000, under a consulting agreement. |
- | In June 2001, the Company issued 20,000 shares of stock valued at $7,400, pursuant to a settlement agreement. |
- | During the nine months ended September 30, 2001, the Company issued a total of 100,000 shares of stock to a consultant, which shares were issued under a consulting agreement at prices based on then-current market price of the Company’s common stock. |
- | In July 2001, the Company issued 300,000 shares of stock valued at approximately $111,000, under a consulting agreement. |
- | In September 2001, the Company issued 400,000 shares of stock valued at approximately $68,000, under a consulting agreement. |
The accompanying notes are an integral part of these statements.
- | 486,500 shares as finder’s fees. |
- | 7,820,000 shares in payment of consulting and professional fees. |
- | 9,769,600 warrants (400,000 warrants, exercise price $.049 per share; 560,000 warrants, exercise price $.10 per share; 3,525,000 warrants, exercise price of $.15 per share; 1,066,000 warrants, exercise price of $.20 per share; 400,000 warrants, exercise price of $.25 per share; 3,618,000 warrants, exercise price of $.30 per share; 400,000 warrants, exercise price of $.35 per share; 400,000 warrants, exercise price of $.40 per share) were issued in payment of consulting fees. |
- | 9,600,000 shares issued to officers pursuant to employment agreements. |
- | 5,530,833 shares sold for cash. |
- | 1,200,000 shares issued in payment of accounts payable and advertising expenses. |
In March 2002, the Company adopted a 2002 Stock Ownership Plan for employees and consultants, reserving 3,000,000 shares of its common stock for issuance thereunder. |
In March 2002, the Company entered into a consulting and marketing license agreement with a third party, under which agreement the Company granted the consultant options, under its 2002 Stock Ownership Plan, to purchase up to $600,000 of its common stock, up to $50,000 per month for ten years, the per share exercise price being based on future market prices, with a 38.75% discount to the market price on the date of exercise. In March and April 2002, the consultant exercised options to purchase $98,000 of Company common stock. 2,000,000 shares of common stock were issued pursuant to this option exercise. In August 2002, the consultant exercised options to purchase $23,000 of Company common stock. 750,000 shares of common stock were issued pursuant to this option exercise. |
In May and August 2002, the Company issued, under its 2002 Stock Ownership Plan, to a consultant a total of 150,000 shares of stock (75,000 shares at each issuance), which shares were valued at $4,500 and $4,500, respectively. |
On June 14, 2002, the Company completed a securities purchase agreement with Evergreen Venture Partners, LLC, whereby the Company issued units of its securities for cash in the amount of $250,000 ($115,000 in cash plus a subscription of $10,000 in April and $125,000 in cash in June). The Company sold to Evergreen a total of 3,645,833 shares of common stock, 3,125,000 common stock purchase warrants to purchase one a like number of shares at an exercise price of $.15 per share and 3,125,000 common stock purchase warrants to purchase one a like number of shares at an exercise price of $.30 per share. Also pursuant to this agreement, the Company hired a new president and chief executive officer, who received, as a signing bonus, 3,000,000 shares of common stock; the Company’s former president, became Chairman of the Board, reduced the term of his remaining term of employment from approximately 4 years to six months, waived the payment of all accrued and unpaid salary and waived the repayment of all loans made by him to the Company, in consideration of 2,000,000 shares of common stock; two of the Company’s vice presidents reduced the terms of their remaining terms of employment from approximately 4 years to six months and one year to six months, respectively, and waived the payment of all accrued and unpaid salary, in consideration of 2,000,000 shares of common stock; and the Company’s other vice president terminated his employment with the Company. Also, under this agreement, Evergreen has the right to name two persons to become directors of the Company. Evergreen has not yet named any person as a director. |
As a result of the transactions with these four officers arising out of the Evergreen agreement, the Company incurred a charge against earnings during the second quarter of 2002 of $567,180. |
| Our management has committed all available current and future capital and other resources to the commercial exploitation of our Quick-Cell wireless Internet access products. It is these products upon which our future is based. |
| Our new president has expanded the scope of our original Quick-Cell business plan, which called for the construction of Quick-Cell systems in small and medium-sized cities. In addition to our original plan, we are now attempting to develop working partnerships with companies who need to create or extend broadband Internet connectivity for their customers, employees and partners. The companies with which we seek to do business operate in the following market segments, among others: hospitality, education, aviation, multiple dwelling unit, planned community development, independent local exchange, utility and municipality. |
| On June 14, 2002, we completed a securities purchase agreement with Evergreen Venture Partners, LLC, whereby we issued securities for cash in the amount of $250,000 (including a $10,000 stock subscription receivable). We sold to Evergreen a total of 3,645,833 shares of our common stock, 3,125,000 common stock purchase warrants to purchase a like number of shares at an exercise price of $.15 per share and 3,125,000 common stock purchase warrants to purchase a like number of shares at an exercise price of $.30 per share. Also pursuant to this agreement, we hired a new president and chief executive officer, Douglas O. McKinnon, who also became a director, and who received, as a signing bonus, 3,000,000 shares of our common stock; David M. Lofin, our former president, became our Chairman of the Board, reduced the term of his remaining term of employment from approximately 4 years to six months, waived the payment of all accrued and unpaid salary and waived the repayment of all loans made by him to us, in consideration of 2,000,000 shares of our common stock; two of our vice presidents reduced the terms of their remaining terms of employment from approximately 4 years to six months and one year to six months, respectively, and waived the payment of all accrued and unpaid salary, in consideration of 2,000,000 shares of our common stock; and our other vice president terminated his employment with us. Also, under this agreement, Evergreen has the right to name two persons to become directors of USURF America. To date, Evergreen has not named any person as a director. |
| As a result of the transactions with these four officers arising out of the Evergreen agreement, we incurred a charge against our earnings during the second quarter of 2002 of $567,180 (unaudited). |
| In May 2001, we entered into an amended and restated common stock purchase agreement with Fusion Capital Fund II, LLC, which replaced a similar agreement entered into in October 2000. Pursuant to the agreement, Fusion Capital may purchase up to $10 million of our common stock. The shares of our common stock being issued under this agreement are the subject of an effective registration statement. To date, we have received only $395,000 under our agreement with Fusion Capital. Fusion Capital has not purchased the maximum shares possible under this agreement. This lack of significant funding has impeded our ability to expand our Quick-Cell business operations. We will remain in this position unless and until (1) our stock price increases significantly or (2) we secure funding from a source other than Fusion Capital, of which there is no assurance. Please see the discussion under the heading “Management’s Plans Relating to Future Liquidity”, for a more thorough explanation of the impact this agreement could have on our business. Should we obtain more substantial funding, we would be able to begin to pursue our wireless Internet business plan. With the funds provided by the Evergreen agreement transaction, we have been able to begin to implement our newly expanded business plan. We have begun to build our wireless Internet network in Denver and have begun to place customers on line there. Also, we have begun to build our wireless Internet network in Colorado Springs and expect to begin to place customers on line there during the last part of November 2002, once our channel partner, SunWest Communications completes its telephone line termination activities. Our management expects that these recent developments will modestly impact our 2002 fourth quarter operating results. In November we acquired NeighborLync, Inc. and MDU Cable Properties, Inc., each of which are start-up companies that have exclusive contracts to provide video and/or high-speed Internet access to a total of eight multiple dwelling unit (MDU) properties located in the Denver and Colorado Springs areas. In the aggregate, the MDU properties under contract contain over 1,800 residential units. We expect the operations of these newly acquired subsidiaries to begin to impact our operating statements during the first quarter of 2003. |
| In October 2001, we began company-owned Quick-Cell operations in Del Rio, Texas, and have agreements with two resellers there. We have approximately 50 customers in Del Rio, and consumer response has been excellent. However, our customer growth will continue to be slowed by a lack of capital. We have also completed engineering efforts in four other South Texas towns. We will not begin marketing our Quick-Cell service in these towns, until we stabilize our working capital situation. |
| As the level of funding under the Fusion Capital agreement has been lower than we had earlier anticipated, $55,000 during the nine months half of 2002, during 2002 we have obtained additional funds through sales of our securities, as follows: |
- | $57,500 (last quarter of 2001) from the sale of 575,000 shares of our common stock and a total of 1,150,000 warrants; |
- | $30,000 from the exercise of outstanding warrants - 200,000 shares at $.15 per share; |
- | $13,000 from the exercise of outstanding warrants - 162,500 shares at $.08 per share; |
- | $121,000 from the exercise of options - 2,000,000 shares at $.049 per share and 750,000 shares at $.03067 per shares (a 38.75% discount to the market price on the date of exercise); |
- | $240,000 ($115,000 plus a subscription of $10,000 in April and $125,000 in June) from the sale of 3,645,833 shares and a total of 6,250,000 warrants, pursuant to the Evergreen transaction; and |
- | $66,000 from the sale of 1,135,000 shares of our common stock. |
| In September 2000, an involuntary bankruptcy petition was filed against CyberHighway in the Idaho Federal Bankruptcy Court, styled In Re: CyberHighway, Inc., Case No. 00-02454, by ProPeople Staffing, CTC Telecom, Inc. and Hawkins-Smith. A joint motion to dismiss the bankruptcy proceeding was unsuccessful because some of CyberHighway’s creditors believe that CyberHighway’s as-yet unasserted damage claims against the original petitioning creditors and their law firm and a claim against Dialup USA, Inc. represent CyberHighway’s most valuable assets. These as-yet unasserted claims include claims for bad faith filing of the original bankruptcy petition as to the original petitioning creditors and their law firm, as well as a claim for tortious interference with beneficial business relationships as to Dialup USA, Inc. These creditors desire that these claims be adjudicated in the bankruptcy court. It is likely that, at some time in the future, a final order of bankruptcy will be entered with respect to CyberHighway. No prediction of the timing of such an order can be made, although we believe that such an order would come only after the final adjudication of the claims described above. |
| The January 1999 acquisition of CyberHighway fundamentally altered our company. Our annual revenues went from nearly zero to about $2.5 million. However, the involuntary bankruptcy proceeding caused the demise of CyberHighway’s business. CyberHighway’s company-owned dial-up customer base went from approximately 8,500 to none. The filing of the involuntary bankruptcy and CyberHighway’s switch-over to the network of Dialup USA were the primary causes of CyberHighway’s customer base demise. We will not apply any available future capital to the revitalization of our dial-up Internet access business. |
| This sudden and permanent demise of CyberHighway’s customer base rendered our intangible assets relating to those customers worthless. The write-off of these intangible assets totalled $4,814,272, net of deferred taxes, as reflected in our December 31, 2000, financial statements. Due to this change in operating environment, monthly revenues decreased substantially, and, accordingly, goodwill was impaired. The write-down of goodwill totaled $4,425,037, as reflected in our December 31, 2000, financial statements. Please see the discussion below under the heading “Liquidity and Capital Resources” for more information on this topic. |
| By the end of February 2001, CyberHighway had lost all of its dial-up Internet access customers and we do not foresee the revitalization of CyberHighway’s business. You should not purchase our common stock expecting that CyberHighway’s business will assist in making us profitable. |
| During the first half of 2001, we derived no revenue from CyberHighway’s business. For the first nine months of 2001 and 2002, our small amounts of revenues were dervied from our Quick-Cell wireless Internet access operations. We currently lack the capital necessary to pursue our complete Quick-Cell business plan, and we may never possess enough capital with which to exploit fully our Quick-Cell products. In this circumstance, it is likely that we would never earn a profit. |
| Before the demise of CyberHighway, our revenues were derived primarily from monthly customer payments for dial-up access and from per-customer royalty payments from our CyberHighway affiliate-ISPs. |
| Beginning in March 2000, we began initial Quick-Cell wireless Internet access operations in Santa Fe, New Mexico. Throughout 2000, our customers in Santa Fe were in their one-year “free-use” period. During most of 2001, we did not charge our Santa Fe customers for service, due to our commencing an upgrade to the system. We were forced to suspend the upgrade of the system and have only a few customers remaining. We have yet to derive significant revenue from our Santa Fe market. In the last quarter of 2001, we began to derive revenues from the first customers in Del Rio, Texas. We have lacked capital with which to expand either of these markets. |
| In September 2001, we began Quick-Cell operations in Del Rio, Texas. We have approximately 50 customers online, but our growth there has been slowed significantly due to our lack of capital. We cannot predict the number of customers we will secure in any specific time frame, due to our lack of capital. In Del Rio, we have chosen to make sustained slow progress in customer acquisition, rather than to have begun full-scale marketing activities only to suspend them soon after their start due to our lack of capital. Should we begin to derive greater amounts of funds under the Fusion Capital agreement or from another source, of which there is no assurance, we plan to construct additional Quick-Cell systems throughout the remainder of 2002. |
| In the middle of 2000, we began marketing our Quick-Cell systems to local exchange telephone companies, independent telephone companies, digital subscriber line resellers and Internet service providers. We sold three Quick-Cell systems in a short time. Due to a lack of capital, however, this marketing effort was suspended before we investigated the nature of the other inquiring companies. No paying customers use these systems, due to circumstances involving these companies that are beyond our control. During the first nine months of 2001 and 2002, we derived no significant revenues from customer modem sales to these Quick-Cell purchasers, and we do not expect to do so during 2002. |
| In cities in which we construct company-owned Quick-Cell systems, we intend to employ telephone marketing as the initial means for acquiring customers and, later, mass media. We will employ a sales force that will focus primarily on potential business customers. This focus on business customers is based on our management’s informal study of Internet usage by businesses versus home users that revealed businesses’ higher demand for high-speed Internet access. Our management’s decision may prove to have been incorrect, which would significantly impair our ability to earn a profit. Our management believes, based on its collective business experience, that effective marketing techniques can overcome Quick-Cell’s lack of name recognition, although this belief may also prove to be incorrect. Our Quick-Cell business will not be able to succeed without additional capital. |
| In cities where a Quick-Cell reseller operates, we will not have final approval of the reseller’s marketing strategies. Our resellers will be permitted to market our Quick-Cell service in any commercially reasonable manner. We cannot, therefore, assure you that any of our resellers will ever achieve high enough sales levels that would permit us to earn a profit. |
| Our revenues for the first nine months of 2001 and 2002 were significantly below those of the comparable 2000 period, since we no longer derive revenues from the operations of CyberHighway and we have lacked capital with which to commence a full-scale implementation of our Quick-Cell business plan. In 2003, we will produce significant revenues only if we are able to be successful in placing Quick-Cell service customers online, of which there is no assurance, due to the uncertainty surrounding our level of capitalization to be derived under the Fusion Capital agreement or any other sources. |
| We have taken steps towards the preparation of tax returns for all years since our inception, though none has been filed. Because we have never earned a profit, there is no tax liability that would arise from this circumstance. |
- | Professional fees decreased from $1,460,446 in the 2001 period to $1,021,702 in the 2002 period. This decrease is a result of our not having required professional services during the 2002 period at the levels required during the 2001 period. Also, during 2002, we did not have a charge against our earnings similar to the $248,000 amount that occurred during the 2001 period, the result of the issuance of 800,000 shares as a commitment fee under a common stock purchase agreement. Should we continue to lack cash reserves, it is likely that, during the remainder of 2002, we would issue shares of our common stock in payment of certain professional fees. |
- | During the 2001 period, we incurred no advertising expense. However, during the 2002 period, we incurred advertising expenses of $66,233. Substantially all of our advertising expenses during the current period are attributable to the exercise of options to acquire shares of our common stock by a consultant at a 38.75% discount to the market price on the date of exercise. |
- | Salaries and commissions increased from $553,296 in the 2001 period to $1,028,476 in the 2002 period. This increase in salaries and commissions is attributable primarily to issuances of shares of our common stock to our officers under their employment agreements, in connection with the Evergreen transaction, as described in the following paragraph. |
- | $57,500 (last quarter of 2001) from the sale of 575,000 shares of our common stock and a total of 1,150,000 warrants; |
- | $30,000 from the exercise of outstanding warrants - 200,000 shares at $.15 per share; |
- | $13,000 from the exercise of outstanding warrants - 162,500 shares at $.08 per share; |
- | $121,000 from the exercise of options - 2,000,000 shares at $.049 per share and 750,000 shares at $.03067 per shares (a 38.75% discount to the market price on the date of exercise); |
- | $240,000 ($115,000 plus a subscription of $10,000 in April and $125,000 in June) from the sale of 3,645,833 shares and a total of 6,250,000 warrants, pursuant to the Evergreen transaction; and |
- | $66,000 from the sale of 1,135,000 shares of our common stock. |
| However, in Del Rio, due to our lack of large sums of capital, we were able to re-design our Quick-Cell system to achieve significant cost savings and built the first portion of that system, which included two server cells - the original plan having called for one server cell - for approximately $18,000, and we have added a third server cell to this system, in response to consumer demand. However, we continue to lack capital with which to market our Quick-Cell service aggressively. Rather, in Del Rio, we have chosen to make sustained slow progress in customer acquisition, rather than to have begun full-scale marketing activities only to suspend them soon after their start due to our lack of capital. Should we begin to derive greater amounts of funds under the Fusion Capital agreement, of which there is no assurance, we plan to construct additional Quick-Cell systems throughout 2002. We currently possess enough capital with which to sustain our current operations. |
| If and when we begin to obtain the maximum amount of funds available pursuant to the Fusion Capital agreement, we expect, then, to have enough money to pay for the construction of the initial Quick-Cell cell site in at least three markets per month. We cannot assure you that we will be able to construct Quick-Cell cell sites at that rate or that we will ever possess adequate capital with which to engage in this level of activities. |
| In light of the relatively small amount of capital required to construct each Quick-Cell cell site, we believe that the expected funding under the Fusion Capital agreement would provide us with enough capital to construct the initial Quick-Cell cell site and commence marketing activities in approximately 30 markets. With the Quick-Cell construction permitted by this amount of capital, we will be able to determine whether our Quick-Cell wireless Internet access business is a viable business, as presently offered. However, the funds expected under the Fusion Capital agreement will not be adequate for us to pursue our complete Quick-Cell business plan, and we cannot assure you that we will be able to obtain capital when needed. Our inability to obtain further capital when needed would lessen our chance of earning a profit, as we would become illiquid. |
- | $57,500 (last quarter of 2001) from the sale of 575,000 shares of our common stock and a total of 1,150,000 warrants; |
- | $30,000 from the exercise of outstanding warrants - 200,000 shares at $.15 per share; |
- | $13,000 from the exercise of outstanding warrants - 162,500 shares at $.08 per share; |
- | $121,000 from the exercise of options - 2,000,000 shares at $.049 per share and 750,000 shares at $.03067 per shares (a 38.75% discount to the market price on the date of exercise); |
- | $240,000 ($115,000 plus a subscription of $10,000 in April and $125,000 in June) from the sale of 3,645,833 shares and a total of 6,250,000 warrants, pursuant to the Evergreen transaction. |
- | $66,000 from the sale of 1,135,000 shares of our common stock. |
| To sustain our current level of operations for the next twelve months, we will require additional capital of approximately $300,000. Our recent securities purchase agreement with Evergreen has provided a significant portion of this capital requirement. To accomplish our goals of expanding our Quick-Cell business, we will require at least $1.2 million. |
| Our best opportunity for obtaining needed funds is pursuant to the Fusion Capital agreement. However, to date, we have received only $395,000 under our agreement with Fusion Capital. Fusion Capital has not purchased the maximum shares possible under this agreement. |
| Since we only plan to sell up to 6,000,000 shares to Fusion Capital under the Fusion Capital agreement, the selling price of our stock sold to Fusion Capital will need to average $1.67 per share for us to receive the maximum proceeds of $10 million under that agreement. Assuming a selling price of $.08 per share, the closing sale price of the common stock on May 16, 2002, and the purchase by Fusion Capital of the full amount of shares purchasable under the Fusion Capital agreement, total proceeds to us would only be approximately $600,000, unless we choose to issue more than 6,000,000 shares, which we have the right to do. |
| Should we obtain at least $1.2 million under the Fusion Capital agreement, we believe that we will be able to have accomplished our primary objectives: |
| In November 2000, CyberHighway requested and received a temporary restraining order against Darrell Davis, formerly one of our officers, and his wife, Deanna Davis. We have alleged that the Davises have diverted dial-up customers from CyberHighway to a company controlled by him, all while he was an employee of USURF America. We expect that a hearing for our motion for a permanent injunction will occur in the future. In addition, we are seeking monetary damages in this action. No prediction as to its final outcome can be made. This case is styled: CyberHighway, Inc. versus Deanna Davis, individually and d/b/a Cyber-Trail, Inc., and Darrell D. Davis, 19th Judicial District Court, Parish of East Baton Rouge, State of Louisiana, Case No. 478320. Patrick F. McGrew, Esquire, is our counsel in this case. |
| In January 2000, we instituted arbitration proceedings against Christopher L. Wiebelt, our former vice president of finance and chief financial officer. At the recent hearing, we alleged that Mr. Wiebelt violated certain terms of his employment agreement and sought damages resulting from those violations, while Mr. Wiebelt claimed wrongful termination under his employment agreement. The arbitrator has awarded Mr. Wiebelt $100,000. We expect to negotiate payment terms in the near future. This case is styled: USURF America, Inc. versus Christopher L. Wiebelt, American Arbitration Association, Case No. 71-160-00087-01. Patrick F. McGrew, Esquire, is our counsel in this case. |
| In July 2002, we became aware of an existing default judgment against us, dated June 7, 2001, in the approximate amount of $22,000. The lawsuit, filed by a law firm in Boise, Idaho, went unchallenged as a result of administrative error. We intend to seek to set aside this judgment, as we have a valid defense to the underlying claims. However, we cannot predict the outcome of our efforts in this regard. Should we fail to set aside this judgment, we will be required to pay this judgment amount. This case is styled: Marcus, Merrick, Montgomery, Christian & Hardee, LLP vs. USURF America, Inc., District Court of the Fourth Judicial District of the State of Idaho, in and for the County of Ada, Case No. CV OC 0101693D. We have not yet retained legal counsel in this matter. |
